Nigeria’s FX reserves seen falling below $30bn, prompting another rate hike

By bne IntelliNews December 17, 2014

Nigeria’s gross foreign exchange reserves will likely drop to below $30bn by the end of June next year if the oil price trend continues below the $65 per barrel, according to analysts at Lagos-based financial services group BGL, quoted by THISDAY daily. As at December 15, the country’s FX reserves stood at $35.4bn, some $4bn below their level in August, when the naira was hit by the oil price slump, prompting the central bank to use its hard currency stocks to defend it. The

Last month, Nigeria’s central bank devalued the naira by 8%, as well as raised its monetary policy rate by 100bps to a new a record high of 13% in a bid to stop the depletion of FX reserves. However, the stock of FX reserves has narrowed 4.2% since November 25, when the package of measures was announced.

BGL analysts believe that the continued depletion of FX reserves and the threat it poses to macroeconomic stability will trigger a further rate hike to 14% next year “regardless of the pro-growth and pro employment stance” of the central bank governor.

The current level of Nigeria’s external reserves provides approximately 7 months of imports cover, but pressure is remaining in view of the falling oil prices, which considerably reduce the build-up of FX reserves, and capital outflows related to the expected rate hike in the US. 

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